Strong, Steady Growth for Zayo in Fiscal Q4, Adds 165 Buildings

Zayo filed its fiscal fourth quarter and full year 2011 results overnight, keeping pace with the strong, solid sequential growth we have seen other fiber operators post recently despite a weakening macroeconomic environment.  However, one has to read rather carefully to tell, because Zayo is continually realigning itself and its component parts as it digests all those acquisitions.  On April 1 they spun off the remainder of Zayo Enterprise Networks to its parent company, thus skewing comparisons with numbers issued in the past – which were themselves boosted intermittently by two acquisitions last year.  I don’t yet have enough data for a table that is self consistent, so we’ll have to stick to words for now.

With the ZEN numbers pulled out, revenues grew by $3.6M sequentially to $77.8M, for or a 20% annualized rate.  Adjusted EBITDA shot up to $37.2M, boosted by favorable dispute settlements as well as cost savings.  That’s a 47.8% adjusted EBITDA margin, though I’m sure it’s more like 43% without the one time events.  Earnings checked in at $11.0M, boosted in part by a non-cash stock compensation credit of $4.5M.

Zayo’s footprint expansion continued unabated.  They added 900 miles of fiber and hooked up 165 buildings to their network – following up last quarter’s 187 and giving them 4,393 right now including what should be over 1900 towers (the supplement will probably have the exact number later this morning).  Only TW Telecom is adding buildings faster than Zayo these days among competitive operators.  Capex of $24.9M was lower than the past two quarters, but still at 32% of revenue – still slightly even higher than AboveNet.

Zayo has been rather quiet on the M&A front since late last fall, when they closed the AFS deal and John Scarano left.  Some have suggested that their private equity backers were ready to cash in, but that’s another of those things that didn’t happen this summer.  But I think Zayo still makes more sense as an acquirer going forward, and I think we’ll see them show up again sometime in the next quarter or two on that front.  For now though, they’re clearly happy to spend their cash flow on organic expansion.

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Categories: Financials · Metro fiber